Navigant Research Blog

On August 21, a total solar eclipse will captivate millions of observers across the United States. Early on its 1,800 mph path across the country, the moon’s shadow will block 5.6 GW worth of solar power plants in California, the top solar state. The California Independent System Operator (CAISO), the state’s grid operator, is well prepared to respond with increased flex-ramp usage and regulation service procurement—essentially a combination of demand management and flexible natural gas and hydropower units. CAISO is aided in part by lessons learned from the 2015 eclipse in Europe, which has higher renewables penetration than the United States.

The eclipse reminds us that the sun’s rays can experience volatility beyond known daily and annual cycles and begs the question: what would happen if the sun stopped shining? Though the question may sound alarmist, it is not entirely trivial. A significant impact event would have solar-blocking potential, with impacting objects above 1 km (about half a mile) in diameter potentially ejecting large masses of pulverized rock into the stratosphere. Solar-blocking geoengineering projects, while intentionally limited in scope, are specifically designed to block the sun’s rays. Movie buffs will remember that humanity scorched the sky and purposefully blocked out the sun to battle solar-dependent robots in The Matrix trilogy.

Solar PV accounted for just about 2% of global electricity production in 2016 but was also the world’s leading source of additional power generating capacity. With some grids anticipating 30%, 50%, or higher eventual PV penetrations, the potential degree of vulnerability is significant—though the probability of diminished insolation is low.

Utility-Scale Solar PV Generators and Path of August 21 Solar Eclipse

(Source: US Energy Information Administration)

A Portfolio Approach

The appeal of solar PV, especially when combined with storage, is undeniable. A clean, distributable, and increasingly inexpensive energy source, solar PV will be a crucial source of power globally. But, much like a contrarian stock market investor, it is worthwhile to look beyond the hype to see what risks loom. To use another stock market analogy, asset diversification is important on the electric grid.

Most of our energy ultimately comes from the sun, and this is especially true of today’s zero-carbon resources. Wind energy is partially driven by daily solar cycles and experienced a 10% decline during Europe’s eclipse. Hydropower, a flexible generation resource that will help ramp during California’s eclipse, is also driven by the sun’s ability to evaporate water. Biopower, another important carbon-neutral dispatchable resource, is driven by the sun, though on the longer scale of months to years. Compared to solar power, each of these should be less directly affected by potential solar-blocking phenomena. Meanwhile, nuclear, geothermal, tidal, and carbon-captured fossil fuel power are not dependent on the sun’s rays. A vague threat to the availability of solar energy does not suggest these should be adopted en masse. However, some consideration should be given to adopting a diversified, risk-mitigated portfolio of generation.

What would happen if a heavily solar-dependent Earth suddenly lost that energy source? Our collective gaze would undoubtedly turn from the sky back to the ground—to the likes of nuclear, geothermal, and for the quickest fix, fossil fuels. Being prepared ahead of time with a diversified, efficient, and clean energy mix could help mitigate that risk.

Still, this month’s eclipse will affect the US grid little since fossil fuels still account for most of the national power supply. For now at least, we can use plenty more renewables to diversify our energy portfolio.

In previous posts, I have explored innovative business models that aim to maximize the value of solar plus energy storage systems in Australia. The country has quickly become a leading market for these technologies—as well as the advanced business models and platforms necessary to unlock their full potential.

Navigant Research tracks the rapidly growing Australian market through its new Energy Storage Projects Data Service, which provides unique insights into the dynamics of markets around the world. As shown below, the majority of storage systems in Australia are being used to integrate new solar projects and maximize their value for both customers and the grid.

While the Australian market for both solar and energy storage has grown exponentially in recent years, these technologies will only be an economical investment for select customers given current business models and regulations. A new program being launched by software provider GreenSync hopes to change this situation by opening new opportunities for customers to benefit from its distributed energy resources (DER).

(Source: Navigant Research)

Making Connections

GreenSync’s software-based marketplace, known as the Decentralized Energy Exchange (deX), aims to provide an avenue for distributed solar PV and energy storage system owners to trade their system’s services with local network operators in exchange for payments. Initially, the primary goal of the exchange will be to help operators manage both peak demand and variable solar generation on the grid. The opening launch of the marketplace will focus on trials with two utilities. ActewAGL, in Australia’s Capital Territory, hopes to understand how market-integrated batteries can alleviate constraints in certain parts of the grid, particularly those struggling to handle high levels of solar PV. United Energy in the Melbourne area is piloting the deX marketplace to reduce grid congestion where summer peak demand is straining existing infrastructure.

These utilities join a number of others in Australia that are working to understand how networks of DER can be utilized to provide services for grid operators in addition to the customers who own them. Utilities like AGL Energy, SA Power Networks, and Ergon Energy are working with various vendors to maximize the value inherent in energy storage systems and other flexible DER to improve the efficiency of the grid while allowing for greater amounts of solar PV to be added by customers.

Coordination Is Key

For DER providers to reach the most customers and realize the full potential of their technologies, these types of virtual aggregation platforms will be essential. Without proper coordination, the growing number of DER on the grid can result in significant systemwide inefficiencies, and their benefits may only be accessible to select electricity customers. Collaboration and coordination among DER stakeholders on the grid are key themes explored in Navigant Research’s recent white paper, Navigating the Energy Transformation.

The ability to effectively aggregate and coordinate distributed systems will be crucial for both utilities and vendors to capitalize on all the values these systems can provide. Vendors with a narrow focus on only providing cost savings and backup power for customers will significantly limit their addressable market, as their solutions may be too costly for many customers. They also risk missing out on the opportunity to play a foundational role in the development of the next-generation transactive energy system that will transform the industry.

Note: This blog is the first in a four-part series examining the evolution of U.S. solar companies.

There is good reason for the concern that the expiration of the 30% Investment Tax Credit (ITC) will have a major (negative) impact on the U.S. solar PV market in 2017, and there is precedent. The on-again-off-again production tax credit for wind power enabled the U.S. market to surge to as high as 12 GW in a single year and then drop to 1 GW the following. In addition, when key solar incentives in Germany, Spain, and the Czech Republic were removed or limited, similar reductions in deployment ensued.

However, the overall U.S. solar PV market, while expected to take a 60% hit in 2017, is projected to prove to be particularly resilient. New business models, international expansion, and continued cost reductions are expected to enable U.S. companies to compete in a post-30% ITC world.

In this four-part blog series, I will be taking stock of key trends in the U.S. solar PV industry that highlight the continued evolution of American solar PV companies and offer a glimpse of what to expect in the future. Taken together, the key trends will provide a snapshot of what future U.S. solar and energy service companies are expected to look like. The blog topics will include financing, vertical integration, international expansion, microgrids, energy storage, and community solar. Two of these are covered below.

Financing

Marking one of the most important evolutions of the solar PV industry in the United States, in 2003, SunEdison pioneered a business model where the company would install, finance, own, operate, and maintain solar PV systems. This would enable customers to purchase the power from solar PV systems on their own roofs without putting any money down. SolarCity took this model to scale in the residential market, and now other companies, such as SunRun, Clean Power Finance, Vivint, SunPower, and Sungevity, are offering everything from leases, to power purchase agreements, to loans, in addition to direct sales. These financing schemes set the stage, in part, for the U.S. solar boom that reached 6.2 GW in 2014. This development is also representative of the way in which solar PV companies have adapted their business models to meet the needs of customers and increase investment in the sector as a whole.

Vertical Integration

Intense competition among hardware suppliers in particular has compressed margins and prompted companies to focus on more profitable downstream activities. SunEdison, for example, was one of the first to move toward vertical integration due to its 2009 acquisition by MEMC, a wafer manufacturer with a global presence and a deep balance sheet.

SolarCity has made strategic acquisitions including Silevo (modules) and ZepSolar (racking). SunRun, which started as a finance company, acquired an installer (RECSolar’s residential division), distribution company (AEE Solar), and mounting company (SnapNrack). Successful vertical integration has enabled solar companies to maximize cost reductions throughout the value chain–and also provide the best opportunity for sustained profitability, an elusive goal for solar component manufacturers and installers during a time of growing competition and market expansion.

In my next blog, I’ll take a look at the key trends of emerging markets and microgrids.

In an upcoming report on pico solar lighting products (<10W) and solar home systems (<200W) sold primarily to rural communities in Africa and Asia, I cover the unit sales, revenue, and capacity of these small solar photovoltaic systems globally. One of the most important trends covered in the report is that pico solar has transitioned from a humanitarian aspiration to big business – more than $100 million in 2014. Corporate involvement in rural electrification has traditionally come in the form of corporate social responsibility initiatives, but real money is now flowing to solar companies serving the base of the pyramid market. The success of a number of off-grid solar lighting companies and social enterprises has attracted interest from major corporations such as Panasonic, Schneider Electric, and Philips, as well as funding from investors. Some of the more notable investments include:

In early 2014, d.light raised $11 million in Series C funding from DFJ, Omidyar Network, Nexus India Capital, Gray Ghost Ventures, Acumen Fund, and Garage Technology Ventures. The company is one of the leading pico solar manufacturers, and has now raised $40 million and sold an estimated 6 million pico solar systems reaching 30 million people.

In early 2014, Persistent Energy Partners acquired Impact Energies, a pay-as-you-go, off-grid solar service provider working in West Africa that has reached 30,000 customers since 2011. The renamed company, Persistent Energy Ghana, installs village solar microgrids and solar home systems.

In late 2013, Khosla Impact invested $1.8 million in a Series A round with BBOXX, a U.K.-based company that sells portable solar kits ranging from 7W to 185W and plug-and-play solar systems that range between 2 kW and 4 kW. The company also provides a mobile pay-as-you-go service enabled by remote battery monitoring, which was the primary interest of Khosla.

In 2012, Greenlight Planet, one of the leading designers and distributors of solar light-emitting diode home lights, raised $4 million from Bamboo Finance and Dr. P.K. Sinha, co-founder of ZS Associates. The investment followed previous financing by Dr. Sinha. Greenlight Planet has sold more than 1.8 million solar lamps since the company was founded in 2008.

In 2012, Barefoot Power, one of the largest pico solar manufacturers, raised $5.3 million from three social investment funds (d.o.b. Foundation, ennovent, and Insitor Fund), existing shareholders (The Grace Foundation and Oikocredit Ecumenical Development Cooperative), and a number of private angel investors.

The full report will be released in the next few weeks. It will discuss industry market drivers and challenges, and includes more than 20 company profiles and country-specific forecasts from 2014 to 2024.